Final Exam notes These are the notes you will need for the final exam for ADMS1000. The exam will cover chapters 5,6,7,8 and 9. These notes cover everything you will need to know. The book is extremely boring and this will save you a LOT of time.
CHAPTER 5STRATEGIC MANAGEMENT Developing Business Strategy Industry a group of organizationsfirms that share similar resource requirements raw materials labour technology customers FiveForces ModelAnalyzing External Environment Allows us to systematically assess the industry environmentThe relationships between the five forces determines attractiveness of the industry environmentUsed to make strategic decisions that leave the firm in the best position to defends itself 1 Threats of New Entrants Two forms new startups or diversification of existing firms in other industries New entrants bring new capacity desire to gain market share substantial resources and capabilities which can reduce profitability Incumbents need to create entry barriersEconomies of scale spreading costs of production over the number of units producedcost advantagesCapital Requirements extremely high for a new firm threat of new entrants is reduced as the level of required capital increasesSwitching Costs refers to the costs monetary or psychological associated with changing from one supplier to another from the buyer perspective Threat of new entrants is greater when the switching costs of customers in minimal in that they can easily switch buying products from one firm to anotherAccess to Distribution Channels If incumbents control most of the distribution channels potential entrants would find it difficult to distribute their products or servicesCost Advantages Independent of Scale Advantages independent of economic factors such as governmental policies legal production patents trademarks and proprietary products These defer entries2 Bargaining Power of Suppliers Supplier power the entities that provide raw materials technologies or skills to incumbents Can demand better prices or threaten to reduce quality This can occur depending on the criticality of the resources the more critical the more power lies with the supplier Also the number of suppliers available relative to the number of incumbents if there are less suppliers than incumbents power lies with the supplier 3 Bargaining Power of Buyers Power held by entities that purchase from incumbents Can demand lower prices better quality play incumbents against one another Factors affecting buying power Switching Costs bargaining power of buyers increases as switching costs decreaseUndifferentiated Products allow buyers to find alternativesImportance of Incumbents Products to Buyers the more importantcritical the products or services are power of buyers diminishesNumber of Incumbents Relative to the Number of Buyers power of buyers diminishes when there are few incumbents since there are fewer alternatives to choose from 4 Threat of Substitutes All firms in an industry often compete with other firms in different industries where the firms provide substitute products or services with similar purposes ex newspaper industry as a whole is threatened by radio and internet 5 Rivalry Among Existing Firms Can be intensified by the following factorsLack of Differentiation or Switching CostsNumerous or Equally Balance Competitorssome firms may believe that they can initiate strategic action without being noticed their action intensifies rivalry among incumbents Rivalry tends to be highest when the firms are similar in size and resources these firms often tend to target similar market niches and share similar resource requirementsHigh Exit Barriers refers to economic strategic and emotional factors that keep firms competing even though they may be earning low or negative returns on their investments visible fixed costs specialized assets escalating commitment of management and governmental and social pressures Analyzing the Internal Environment Jay Barneys VRIO model value rareness imitability organization Value managers need to ask if their firms resources and capabilities add any value to capture market share or enhance profitability either through exploiting emerging opportunities or neutralizing threats Rareness valuable resources and capabilities help firms survive these resources and capabilities need to be rare controlled by a small number of firms to obtain a competitive advantage Imitability How long the advantage lasts depends on how quickly imitation could occur need to create barriers to imitation so the degree of rareness and value of the resources and capabilities does not diminish Organization firms need to be organized in effective and efficient ways to exploit their valuable rare and difficulttoimitate resources and capabilities to maximize their potentials This is critical to success If the firm does not achieve these four steps to ensuring a sustainable competitive advantage it will have a temporal competitive advantage SWOT Analysis The conclusion of the VRIO model and Fiveforces model complement and supplement each other and can be summarized by SWOT Analysis in combination with an analysis of the general external environment trendsstrategically use internal strengths in exploiting environmental opportunities and neutralizing environmental threats while avoiding internal weaknesses STRATEGIES 1 BUSINESSLEVEL Cost Leadership gaining competitive advantage by reducing economic cost below that of all competitors 3 sources 1 economies of scale firms increase production volume to reduce marginal costs 2 learning curve economies firms can reduce MC by experience learning by doing and decreasing defects of productions or services 3 low cost access to factors of production These three sources could be easily imitated by competitors but a combination of these three can make imitation difficultAdvantagesgives the firm the highest profit margins in the industrygives firm flexibility in response to pressures coming from five forces in industry environment Product Differentiation increasing perceived value of their products and services relative to that of other firms ex differentiate through product features linkages between functions location product mix links with other firms and service In order to achieve abnormal returns the firm needs to obtain a sustainable competitive advantage need to create value that is rare and difficult to substitute or imitateAdvantagegood position to defend from pressures of five forces Focus target a particular buyer group a segment of the product line or the geographic market By targeting a narrow market the firm is able to compete efficiently or effectively and achieve differentiation by meeting the needs of the particular group or lower costs in serving the group 2 CORPORATELEVELTwo challenges 1 which business or markets a firm should compete in 2 how these businesses or markets can be managed so they create synergy Very difficult to grow in a single market in todays business world globalization trend presents new market opportunities Successfully managing diversification a firm operating in multiple markets simultaneously can give a firm enormous profitability and competitive advantage